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Tencent’s substantial ownership stake in Tesla, acquired through investments

At a time when the world has already accepted globalization, news about businesses forging international alliances or enemies is not new anymore. Today, companies based in one part of the world can interact with clients, competitors, and allies worldwide within a few minutes. We have the internet which has made communication as natural as anything(“Tesla Gets Backing of Chinese Internet Giant Tencent – WSJ,” n.d.). Then there are cell phones and fast-moving transports, like airplanes, allowing a man to access the world within a few hours. These days, businesses do not base their trade in one region only. Products are exported and imported, to and from all over the world. Exports and imports account for a country’s Gross Domestic Product, which measures a nation’s profitability.

Tesla, the manufacturer of luxury electric vehicles, is a prominent brand. Started by serial entrepreneur Elon Musk, the company has an annual revenue of $ 7 billion. The company is named after the famous physicist Nikola Tesla, who did significant work on electricity. The idea for the company came when GM recalled and destroyed its EV1 vehicles. Elon Musk and his partners decided to try their luck in the business, and the rest is history(“Tesla Gets Backing of Chinese Internet Giant Tencent,” n.d.).

Recently, a Chinese corporation, Tencent, bought a small share of 5 % of Tesla’s stock. The move comes when Tesla is about to launch a new brand of electric vehicles and needs loads of cash. The news has created quite a stir. The following are some of the questions asked by people who reacted to the report. Answers to these questions are also given.

Question 1: What nature is Tencent’s investment in Tesla? How would you characterize Tencent as a stakeholder?

Tencent a prominent Chinese conglomerate is an influential company. Its investment in Tesla is a clear sign that Tesla can and will be entering the Chinese market soon enough. With help from Tencent, Tesla can efficiently produce electric vehicles in China for a fraction of the original cost.

As far as Tencent as a stakeholder is concerned, it is quite evident that Tencent might want to make profits off of Tesla(“Tencent of China Takes 5 Percent Stake in Tesla – The New York Times,” n.d.). China is considered a hot market for automobiles, especially luxury cars. An electric vehicle will attract Chinese buyers like crazy. Electric vehicles might solve China’s fuel shortage problem and provide easily accessible transport, at an affordable price. Hence, as a stakeholder in Tesla, Tencent is bound to earn a lot if it convinces Tesla to move to China.

Question 2: what does Tencent’s investment mean for Tesla? Why is it good? Are there any things that Musk should be concerned about?

Tencent is a Chinese holding company, that operates businesses in the Internet, telecommunication, and technology industries. The company, along with Foxconn Technology Group provides manufacturing services for Apple Inc.’s iPhones and has invested quite heavily in Future Mobility Corp.; a startup that will manufacture electric vehicles by 2020.

Considering the worth and reach of Tencent, it can be said that Tencent can play a significant role in Tesla’s future. So far, the spokespersons for both Tesla and Tencent have not answered the question. But one thing is clear, Tesla is set to launch its Model 3 sedan and needs money. With Tencent, it can finance the new car and start Tesla in China. Additionally, if Tencent agrees to manufacture Tesla’s cars through Future Mobility Corp., it might produce the cars for a fraction of what it currently costs.

While Tencent’s investment in Tesla seems to be a good omen for Tesla, Elon Musk should carefully decide his next step. It is quite clear that Tencent has also invested in Future Mobility Corp. and plans to launch its brand of electric vehicles. It might be a possibility that it is trying to capture the Chinese market through Tesla, for its upcoming brand. Tesla will have to be very careful when signing any deal with Tencent.

Question 3: How do you predict that Tencent’s investment in Tesla will evolve in the future? What is the maximum holding that Tencent would want or be allowed to obtain?

Tencent; while a technology giant in China, is hardly known outside China. The company is known for investing in other businesses. It has WhatsApp’s franchise for China and is known for being the most significant game publisher in the world. Tencent has spent its money, buying 5 % of Tesla which is quite a considerable share, considering that Tesla’s largest shareholder; Elon Musk, himself owns 20 % of the company.

I think that Tencent’s investment is for the betterment of both companies. While Tencent can help Tesla gain a solid foothold in China and manufacture automobiles at one-third of the original cost, Tesla can help Tencent achieve its dream of producing electric vehicles. Besides, Tesla; which has a debt of billions of dollars, might be able to pay off that debt with Tencent’s money. While market analysts are still looking at the deal, I have made an analysis that I see the future of Tesla as a company jointly run by Elon Musk and Tencent. Either that or Tencent might take over Tesla entirely. Because of the type of debt Tesla has, it has to have the backing of a loud party that will assure the creditors that the debt will be paid.

References

Tencent of China Takes 5 Percent Stake in Tesla – The New York Times. (n.d.). Retrieved December 8, 2017, from https://www.nytimes.com/2017/03/28/business/dealbook/tencent-tesla-wechat-stake.html

Tesla Gets Backing of Chinese Internet Giant Tencent. (n.d.). Retrieved December 8, 2017, from https://www.msn.com/en-us/money/companies/tesla-gets-backing-of-chinese-internet-giant-tencent/ar-BByXwCr

Tesla Gets Backing of Chinese Internet Giant Tencent – WSJ. (n.d.). Retrieved December 8, 2017, from https://www.wsj.com/articles/chinas-tencent-buys-5-stake-in-tesla-1490702095

 

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